Glossary

Recording every sale, purchase, payment and bill in a business, accurately and on time, so the owner always knows where the business stands.

Example: Recording the café's sales, bills and bank payments each week.

The wider job of using the books: preparing tax returns, giving advice, analyzing results and planning. Bookkeeping is the recording part of accounting.

Any event that changes the business's money, what it owns or what it owes. Every transaction gets recorded.

Example: Selling a pastry box, paying rent, or buying coffee beans on credit.

All of a business's financial records together. "Doing the books" means keeping those records up to date.

The paper or file that proves a transaction happened: a receipt, invoice, bill, bank statement or contract. Bookkeepers record from source documents and keep them.

Proof that money was paid. Keep receipts for business purchases: the IRS can ask for them.

The length of time a report covers, usually a month, a quarter or a year.

The 12-month period a business uses for its accounts and taxes. For most small US businesses it is January to December.

A way of keeping books where income counts when money arrives and expenses count when money leaves. Simple, and common for very small businesses.

A way of keeping books where income counts when it is earned and expenses when they are incurred, whether or not money has moved yet. This course uses accrual basis.

Example: An invoice counts as a sale on the day it's sent, before the customer pays.

The standard rules for accounting in the US. Small businesses don't always follow every rule, but bookkeepers should know they exist.

A record of who entered or changed each transaction, and when. It helps catch mistakes and fraud.

Keeping a business's financial information private. Bookkeepers see salaries, bank details and profits, and share them only with people the owner allows.

Two digits typed the wrong way round, such as 1,320 entered as 1,230. The difference always divides evenly by 9, which is a quick way to spot one.

Example: $1,320.00 − $1,230.00 = $90.00, and 90 ÷ 9 = 10.

Typing numbers quickly and accurately on a keyboard's number pad without looking. Many bookkeeping and data-entry jobs test it.

The person who records transactions, keeps the books tidy and up to date, reconciles accounts and prepares reports. Usually not licensed.

A person trained in accounting who uses the books to prepare tax returns and financial statements and to give advice. May or may not be a CPA.

A US accountant licensed by a state board. CPAs can audit financial statements and represent clients before the IRS. Many small businesses send their year-end books to a CPA.

The person who owns the business and makes the decisions: prices, hiring, big purchases. The bookkeeper works for the owner and reports to them.

A person or business that buys from you.

Example: Riverside Yoga buys catering from the café.

A person or business you buy from. US software usually says vendor; elsewhere people often say supplier.

Example: Bean Supply Co. sells the café its coffee beans.

The US federal tax agency. Businesses file tax returns and payroll taxes with the IRS, and must keep records to support them.

Intuit's long-running program for accounting professionals who work with QuickBooks, including its certifications. Intuit changes the program from time to time, so check its official page for the current name and rules.

Assets = Liabilities + Equity. Everything the business owns was paid for either by borrowing (liabilities) or by the owner and profits (equity). It must always balance.

Something the business owns or is owed that has value.

Example: Money in the bank, the espresso machine, money customers owe the café.

Something the business owes to someone else.

Example: An unpaid bill from Bean Supply, a bank loan, the credit card balance.

The owner's share of the business: what's left of the assets after paying all liabilities. It grows with the owner's investment and with profit.

Money the owner puts into the business from their own pocket. It increases equity.

Money the owner takes out of the business for personal use. It reduces equity; it is not a business expense.

Money the business earns by selling goods or services. Income increases equity.

Example: Food sales, beverage sales and catering income.

A cost of running the business. Expenses reduce profit, and so reduce equity.

Example: Rent, electricity, wages.

The direct cost of the things you sold. It is listed separately from other expenses so you can see your gross profit.

Example: Coffee beans and pastry ingredients used to make what the café sold.

Profits from past years that were kept in the business rather than taken out by the owner. Part of equity.

A named place in the books where one kind of money is tracked, such as Checking, Rent or Food sales. Every transaction changes at least two accounts.

The group an account belongs to: asset, liability, equity, income, cost of goods sold or expense. The type decides which report the account appears on and whether a debit increases it.

The full list of a business's accounts, organized by type. It's like the list of folders every transaction is filed into.

The system where every transaction is recorded in at least two accounts, with equal debits and credits. It keeps the accounting equation balanced and makes mistakes easier to spot.

An entry on the left side of an account. A debit increases assets and expenses, and decreases liabilities, equity and income. It doesn't mean good or bad.

An entry on the right side of an account. A credit increases liabilities, equity and income, and decreases assets and expenses. It doesn't mean good or bad.

A simple drawing of one account shaped like a T: debits on the left, credits on the right. Used to learn and to work out entries on paper.

A record of a transaction that lists the accounts debited and credited and the amounts. Debits must equal credits. In software, most entries are made for you by forms such as invoices.

The list of every journal entry in date order. Software builds it automatically.

All the accounts with every debit and credit posted to them, so you can see each account's activity and balance.

A list of every account's balance on a date. Total debits must equal total credits; if they don't, something is wrong.

The amount in an account at a point in time, after all its debits and credits.

A bill you send to a customer who will pay later. It records the sale now and what the customer owes.

Example: Invoice #1043 to Riverside Yoga for $240, due in 30 days.

A record of a sale that was paid for on the spot. Nothing is owed afterwards.

Example: A walk-in customer pays by card for 3 pastry boxes.

How long a customer has to pay an invoice. "Net 30" means the full amount is due 30 days after the invoice date; "Due on receipt" means pay now.

The last day to pay an invoice or bill without being late. Invoice date + payment terms.

Money customers owe you for invoices they haven't paid yet. It's an asset.

Example: Riverside Yoga still owes $95 on invoice #1051.

Recording a customer's payment and matching it to the invoice it pays. It lowers accounts receivable; it is not a new sale.

An invoice or bill that hasn't been paid by its due date.

A report listing what each customer owes, grouped by how late it is: current, 1–30 days, 31–60 days and so on. Used to chase late payers.

A holding account for checks and card payments you've received but not yet seen in the bank. They move to Checking when the deposit is recorded.

Money put into a bank account. One bank deposit often combines several customer payments.

A price offer sent before work is agreed. It doesn't change the books until it becomes an invoice.

A document that reduces what a customer owes, for example after a return or a discount.

A US state and local tax added to many sales. The business collects it from customers and pays it to the state; so it's money the business owes, not income.

Something you sell, set up once with its price and the income account its sales go to.

Example: Pastry box, $36, goes to Food sales.

An invoice you receive from a vendor that you'll pay later. Recording it creates accounts payable.

Money you owe vendors for bills you haven't paid yet. It's a liability.

Example: The café owes Bean Supply $1,240 for beans delivered this week.

A report listing what the business owes each vendor, grouped by how late each bill is: current, 1–30 days, 31–60 days and so on. Used to decide which bills to pay first.

Example: Metro Power's $165 bill, due October 13, shows in the 1–30 days column on October 15.

Recording that you paid a bill you entered earlier, using Pay bills. It lowers accounts payable and the bank (or card). It is not a new expense: the cost was counted when the bill was entered.

In QuickBooks, a purchase paid immediately by card, cash or bank transfer, recorded in one step with no bill.

An order you send a vendor before buying. Like an estimate, it doesn't change the books until the bill arrives.

Paying someone back for a business cost they paid personally.

A paper order telling a bank to pay someone. "Check" is the US spelling of cheque. Each check has a number used as its reference.

An electronic bank-to-bank payment in the US, used for payroll, bills and customer payments. Similar to a direct bank transfer in other countries.

The everyday business bank account money goes in and out of. In the books it's an asset account, often just called Checking.

In the books, the business credit card is a liability: it's money the business owes the card company.

The bank's monthly list of every deposit and withdrawal, with opening and closing balances.

Transactions downloaded automatically from the bank into the accounting software, waiting to be reviewed and posted to the books.

An instruction that tells the software what to do with bank lines that match it, such as "any line containing METRO POWER goes to Utilities". A rule can fill in the details for you to check, or post the line automatically.

Example: A rule that categorizes every MONTHLY SERVICE FEE line as Bank fees.

Moving money between the business's own accounts, such as Checking to Savings, or paying the business credit card from Checking. It isn't income or an expense.

Example: Moving $2,000 from Checking to Savings.

One payment divided into lines for different categories, because it paid for different kinds of things.

Example: A $64.50 hardware receipt: $38.00 to Repairs and maintenance and $26.50 to Cleaning services.

Linking a downloaded bank line to a transaction already in the books, instead of adding it again. Matching prevents duplicates.

Example: Matching the bank's CHECK 1105 line to the bill payment you recorded with check #1105.

Choosing which account a bank transaction belongs to, such as Rent or Food sales, so it lands in the right place in the books.

Checking the books against the bank statement line by line until the balances agree. Done every month for every bank and card account.

A check you've written and recorded that the bank hasn't paid yet. A common reason the books and bank disagree.

Money you've recorded as deposited that the bank hasn't added to the account yet, usually because it was deposited at the end of the day or month. It clears by itself in a day or two.

A report of income minus costs and expenses for a period, showing whether the business made a profit.

A report of assets, liabilities and equity on one date. Assets always equal liabilities plus equity.

A report explaining why the cash balance went up or down over a period.

Income minus cost of goods sold: what's left from sales after paying for what was sold.

What's left after all costs and expenses are taken from income. A negative number is a net loss.

The checklist done after each month: everything recorded, accounts reconciled, reports reviewed, and the month locked so it can't be changed by mistake.

The business's US federal tax ID number, used on tax forms and payroll.

Paying employees and handling the taxes taken from and added to their pay. Many small businesses use a payroll service such as Gusto or ADP.

The yearly form an employer gives each employee, showing pay and taxes withheld.

The yearly form a business sends to each independent contractor it paid, reporting what they were paid. Only payments above an amount set by the IRS need one; the IRS updates that amount, so check its official page.

A form you ask contractors to fill in before paying them, giving their tax ID so you can prepare their 1099.

Someone paid for work who isn't an employee. No payroll taxes are withheld, but they may need a 1099.

A customer, vendor, product or service that's hidden from lists and forms but not deleted. Its past transactions stay in the books. QuickBooks Online uses this instead of deleting names that have history, and you can make them active again.

Example: Making a duplicate vendor, Bean Supply Company, inactive so bills only go to Bean Supply Co.

Intuit's cloud accounting software for small businesses. Other tools include Xero, FreshBooks, Wave and spreadsheets.

A program that records transactions through forms (invoices, bills, payments) and builds the journal, ledger and reports for you.

One business's complete set of books inside the software. A bookkeeper with several clients works in several company files.

The first screen after you sign in, with a summary of money in, money out and bank balances.

The button that opens every form: invoice, receive payment, bill, expense and more. Older versions call it + New.

Intuit's sample company for trying QuickBooks Online. It already has data in it, and your changes aren't saved after you leave.

In QuickBooks, a more specific label inside an account type, such as Checking inside Bank. It helps the software and the tax preparer.